Opinion

EDITORIAL: More bad news for CalPERS

The beleaguered California Public Employees’ Retirement System has been plagued by exceedingly generous retirement benefits for government employees, overly optimistic actuarial assumptions and some years of poor investment performance – exacerbated by excessively risky, politically-driven and otherwise bad investment decisions, including the questionable use of private equity firms with large fees. It now has only about 73 percent of the assets needed to cover its liabilities.

Unfortunately, the news is not getting any better, as the pension fund lost 2 percent of its market value during the just-ended fiscal year, the Register reported. That is significantly below the pension system’s 7.5 percent assumed annual investment return and discount rate. If the pension fund underperforms, or other actuarial assumptions turn out to be overly optimistic, taxpayers have to make up the difference.

And it looks to be much more than the case of just a bad year or two. In fact, the next three to five years are expected to be “a challenging market environment, not just for CalPERS, but for all investors,” CalPERS chief investment officer Ted Eliopoulos said during a committee meeting. “It’s going to test us.”

State Sen. John Moorlach, R-Costa Mesa, knows a thing or two about failed government investments, having gained fame – and public office – after predicting Orange County’s bankruptcy in 1994. “What has me baffled is that this is causing me great anxiety, but it does not seem to have the same impact on my colleagues in Sacramento,” Sen. Moorlach told the Register. “The governor has just signed the largest budget in state history, but he is not making any effort to prepay CalPERS, a 7.5 percent interest-rate charging debt.”

“CalPERS, like virtually all of its peers, is in deep denial about its fix,” writes Yves Smith on the nakedcapitalism.com blog. “While CalPERS is effectively accountable to no one, by virtue of having a protected status in the state constitution and an exceptionally weak and cronyistic board, if it continues with its delusional posture that it can earn its way out of its underfunded position, pushback is inevitable.”

More realistic assumptions would be welcome, but real reform will necessitate reining in government pay and benefits to private-sector levels and replacing the current pension system with 401(k)-style defined-contribution retirement plans for employees.

Some defenders of the status quo, particularly public employees unions, pooh-pooh the dire pension fiscal warnings. Those beating the drum for public pension reform are merely “crying like Chicken Little about how the sky is falling,” Dave Low, chairman of Californians for Retirement Security, a coalition of unions representing 1.6 million active and retired public employees, insisted to the Register.

But the tales of financial ruin have proven all too true for many governments. Look at San Bernardino. Or just ask Sen. Moorlach, who heard the derisive Chicken Little claims more than a few times before O.C. went bankrupt. His license plate, as he fondly related in his recent e-newsletter, says it all: “SKY FELL.”

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